US military deployment to Iran keeps markets on edge; Vector earnings loom

Brent crude oil prices rose and stocks on Wall Street were broadly weaker as the US deployment of aircraft and navy vessels to the Middle East raised the stakes on talks with Iran over its nuclear programme, with US President Donald Trump giving a 10-day deadline on whether he’ll order strikes or cut a deal.

Across the Atlantic, Airbus cast a pall over European markets after the plane maker – which supplies local carrier Air New Zealand – pared back expectations on deliveries for the year as issues at engine maker Pratt & Whitney forced the manufacturer to slow production of its A320 jets.

Domestic earnings season continues with lines company Vector’s new dividend policy to be closely watched, while property developer Winton Land will provide an update on the signs of recovery in the subdued housing market.

And Reserve Bank governor Anna Breman will continue her speaking circuit with a lunchtime speech to Business Canterbury, while Statistics New Zealand’s monthly trade data are also due.

Temperature rising

Brent crude oil futures rose 2% to US$71.76 at 7am in Auckland as US President Donald Trump said he’d decide over the next 10 days whether to launch a strike on Iran if a deal can’t be reached over the Middle Eastern nation’s nuclear programme.

That was hot on the heels of US military buildup in the region, with the biggest arsenal of jet fighters and support aircraft in the Middle East since the 2003 invasion of Iraq.

“While oil markets began the year weighed down by excess supply, the prospect of disruption to key shipping routes, including the Strait of Hormuz, has seen risk premiums rebuild, lending near‑term support to prices,” Bank of New Zealand senior interest rates strategist Stuart Ritson said in a note.

Energy majors Chevron and Exxon Mobil gained on Wall Street and Amsterdam-listed Shell and London-listed BP were also stronger in a broadly subdued session on Wall Street and in Europe.

The Dow Jones Industrial Average fell 0.8% in late trading with Goldman Sachs, IBM and Boeing at the bottom of the leaderboard, while the tech-heavy Nasdaq Composite was down 0.6%.

Big-box retailer Walmart dipped after reporting strong December quarter sales growth, albeit not at a fast enough pace to retain its billing as the biggest company in the US by revenue, with ecommerce giant Amazon eclipsing the chain.

Meanwhile, Deere & Co rallied after raising its annual outlook on a recovery in construction and small agriculture markets.

Still grounded

French aircraft maker Airbus weighed on European stock markets as it sank 6.8% after trimming its forecast deliveries to 870 planes this year from a previous projection of 907. Airbus blamed engine maker Pratt & Whitney’s engine shortages for the delays, which forced it to slow production of its popular A320 models.

National carrier Air New Zealand is scheduled to report next week, and has been stifled by engine issues grounding some of its fleet.

Food giant Nestle gained after beating analysts’ expectations, saying it’s selling its 50% stake in the Froneri ice cream joint venture, which owns New Zealand’s Tip Top brand, and that its infant formula sales will be dented by a global recall. The a2 Milk Co avoided the recall by other firms.

France’s CAC 40 was down 0.4%, while Germany’s DAX fell 0.9% and the UK’s FTSE 100 declined 0.5%.

That’s set to continue in the antipodes, with Australian futures pointing to a 0.5% decline for the S&P/ASX 200 index when trading opens today.

Locally, Vector is due to report today, with the lines company’s first-half earnings expected to benefit from rising electricity prices, although the firm’s new dividend policy will come into view for analysts keen to understand future payouts.

Winton Land is expected to report another soft result as the property developer contends with a slow housing market, with analysts looking for signs of recovery.

Reserve Bank governor Anna Breman will deliver a speech to Business Canterbury at lunchtime today, having quelled market expectations for a pre-election rate hike in keeping the official cash rate at 2.25% earlier this week. The kiwi dollar traded at 59.68 US cents at 7am in Auckland from 59.75 cents yesterday.

And Stats NZ will release overseas merchandise trade figures for the month of January.

Reporting by Paul McBeth. Image from Chris Liverani on Unsplash.